By: Marina Vigdorchik, CS Moscow May 2005

Russian cities rely heavily on their urban mass transit systems. Though these systems are aging and in need of modernization, they remain effective and are expansive. Three fourths of Russia’s population of 144 million lives in urban areas and Russia’s mass transit systems carries in excess of 120 million passengers each day. The Russian market for mass transit rolling stock is one of the world's largest and holds significant potential for foreign suppliers in the medium and long term. As Russia’s economy expands, demand for modern high quality components for rolling stock and vehicles meeting international technical and ecological requirements is also growing, giving a boost to the industry and creating opportunities for U.S. exporters. There are also increasing opportunities for suppliers of modern traffic management systems and for U.S. suppliers of transport equipment and engineering and consulting services.

Overview of Russia’s Mass Transit System

Although private car ownership continues to grow (now exceeding 9% growth annually in Moscow), undeveloped urban traffic infrastructure will ensure a prominent place for urban mass transit systems for the foreseeable future. Subways are now operating in 6 cities: Moscow, Saint Petersburg, Novosibirsk, Nizhni Novgorod, Ekaterinburg and Samara. In addition, new subway lines are also under construction in Kazan, Omsk, Chelyabinsk and Volgograd. Construction plans are already in development for new metro systems in Perm and Rostov-on-Don. All these metro systems are constantly expanding with construction of new lines and stations being announced regularly. These systems operate essentially as autonomous units with the rest of public mass transport system delivering passengers to them.

City Passenger Transport (Gorodskoe Passazherski Transport or GPT) is provided by a bewildering array of systems including heavy and light rails, monorails, trams, trolley buses, over-the-road coaches, buses and more. While such fleets are generally obsolete and in need of constant repair and replacement, local manufacturers are able to satisfy the demand for rolling stock and vehicles in required volumes and at attractive prices. Bus transport service is provided in 1,231 urban communities and to 81,101 rural settlements. Buses operate on 9,576 urban and 16,115 suburban routes and 6,482 intercity routes. Taxis operate in 81 Russian cities and electric public transport functions in 177 towns, including tram service in 67 cities and trolley bus service in 90 cities. Length of tramway track is 6.3 thousand km and length of trolley bus lines around 10 thousand km.

Like most market economies, Russia operates both social, government subsidized public transportation and the constantly expanding number of private mass transit operators. The traditional public sector, which provides the majority of services, carries people at regulated tariffs and operates with significant losses. These services are subsidized from local budgets. Private sector (primarily buses and mini-buses) are self-financing and do not receive government assistance, and their fare structure is typically not fixed. Most private transport companies operate bus services, particularly using small capacity buses and mini-buses. However, several contract operators are now operating commercial trolley bus transportation. Also some city administrations have begun to contract the complete provision of municipal mass transportation services to private operators. These operators transport passengers in large capacity buses as well as in trolley buses and receive subsidies from the local budgets.

Fare increases and plans to introduce distance-based fare structures for public systems continue to appear in the headlines around the country. On January 1^st, 2005, the Russian Federation government eliminated the majority of transportation privileges for use of public transport. Prior to this, more than 60% of country’s populous enjoyed special fare privileges, mainly in the form of free transportation. This new increases in revenues are helping operators to modernize and seek modern technologies to improve the operations of their fleets.

Infrastructure

In 2004, Russia’s infrastructure included 1,976 thousand km of bus routes, 6,31 thousand km of tramways, 9,97 thousand km of trolley bus routes and 420.5 km of subway lines (double-track) with some 267 stations. Overall, the renewal and refurbishment of the mass transit infrastructure is one of the priority issues facing Russia’s municipal authorities. While the mass transit system has adequate technical maintenance and production facilities (parks, depots and garages) for the size of the fleets, much of the equipment employed is obsolete, and it is estimated that around 60% of this equipment needs to be replaced.

Though in regular use, it is estimated that half of the track and power supply facilities for electric transport are in need of renewal. Real estate investments are now helping fund the modernization of some interchange stations, where service, trade, and information centers have begun to sprout up around bus and tram stops.

Moscow’s Passenger Transportation System

When discussing the urban mass transit environment in Russia, it is prudent and necessary to consider country’s capital on its own given the sheer magnitude of its mass transit network. The Moscow city metro system is generally regarded as the best in the world in terms of reliability and passenger volumes. In 2004, the metro alone carried over 4 billion passengers. Surface passenger transportation includes 5,589 km of bus routes, 938 trolleybus routes and 419 tram routes. Moscow’s Metro is more than 250 km in length and consists of 9 lines and more than 150 stations. Moscow’s major transport operator, state holding company Mosgortrans (an abbreviation of Moscow Government Transport) operates 30 state enterprises and serves more than 600 regular routes. There are more than 5,246 thousand units of a rolling stock, including 3,556 thousand buses, 1,159 thousand trolleybuses and 531 trams. In 2004, Mosgortrans procured 629 new buses, 134 trolley buses and 127 trams. The Moscow city government’s 2004-2005 investment program calls for procurement of 300 trolleybuses and 700 buses equipped with automatic fare collection system and is emphasizing the use of alternative types of fuel including natural gas. Currently, the Moscow city is also implementing new monorail and a mini–metro projects. The first monorail line has been completed and is undergoing operational tests. The first mini-metro line of 2,780 meters long is scheduled for completion in September 2005.

Mass transit’s position in the overall passenger transportation

For the foreseeable future, mass transit will enjoy a continued heavy reliance in all of Russia’s cities. Road infrastructure is in relatively poor condition, and the rapidly increasing number of cars is putting severe stain on urban road traffic management systems not designed for such volumes of cars. Thus, mass transit system must continue to play a vital role in ensuring the population’s transport mobility. In 2004, Russia’s urban public transport systems carried over 37,4 billion passengers. Motorbus transportation accounts for 48% of all traffic, trolley buses and tramways for 42%, and subways for 10% of passenger traffic.

Table 1

Passengers transported by all means of transport (million passengers).

Types of transport	1995	2001	2002	2003	2004
Buses	22,817	20,883	19,620	17,896	21,000
Trams	7,540	7,354	6,982	6,321	5,803
Trolley buses	8,475	8,604	8,181	7,291	7,160
Subway	4,150	4,205	4,200	4,205	4,211
Taxi	66	13	12	10	N/A
Sea	3,4	0.7	0.6	0.6	1,223
Internal water	25	27	27	22	22.8
Air	32	26	28	31	33.8
Railway	1,833	1,306	1,271	1,304	1,335
TOTAL:	44,941	42,419	40,322	37,083	40,789 (estimated)

Source: State Statistic Service and Ministry of Transport

The average Russian city has 3 public (municipal) passenger transport enterprises, two of them operating bus fleets and one operating urban electric transport, as well as 5-6 private enterprises and around 100 individual minibus entrepreneurs. The Russian mass transit market is therefore comprised of approximately 350 municipal and public operators, more than 1,500 medium-sized private operators and about 35,000 self-employed entrepreneurs. Overall, public sector enterprises account for 85% of mass transit passenger traffic in Russia, while the 15% carried by the private sector, concentrated in bus and minibus transport.

Overall Fleet Performance

At the beginning of 2004, Russia’s public sector mass transit fleet comprised approximately 92,000 buses; 10,900 tramcars; 11,800 trolley buses, 5,900 subway cars. Vehicles of large and extra large capacity comprise 66% of the public sector bus fleet, and 100% of the tram and trolley bus fleet. According to the Ministry of transport, 58.8% of bus fleet is more than 8 years old, while only 26.2% of buses are less than 5 years old. More than 60% of tram and trolley bus fleet is 15 years old and 10 years old respectively. Thus, a major of investments will be for the renewal of the mass transit fleet. The current annual renewal rate for the bus fleet is 5%, while deterioration is at the level of 15%. The situation with tramway and trolley bus fleet renewal is similar with the deterioration of trams and trolley buses is 6% and 8% respectively, while renewal is 0.6% and 3%.

In addition, some 66,700 private sector buses are in operation for passenger transport (only 12% of the privately owned bus fleet of large and extra-large capacity and the average private owner/operator runs just two buses). Such private bus fleets are comprised of mainly small capacity buses and minivans (Russian-built PAZ, GAZ Gazelle models and Ford Transits). These buses are mostly used for commercial operations. Priced approximately at $6000, a new Gazelle has a payback period of 1.5- 2 years making these buses the most popular among individual businessmen. Recently, some private operators began introducing larger capacity buses to their fleets. These are mostly second hand Western models (МАN, Scania, Mercedes, and Volvo) that typically have a remaining service life of 10-15. With a typical value of $15,000- 20,000, these buses are estimated to pay for themselves in 2 years. However, increases in import duties have caused private operators to significantly reduce the importation of second hand buses.

According to Ministry of Transport of Russia, the annual demand for vehicles to replace the existing fleets is estimated at 12,000-15,000 buses, more than 1,000 trolley buses, 600 trams and 270 subway cars. However, in 2002 state and municipal entities purchased only around 5,000 new buses, 480 trolley buses and only 82 trams. Including purchases of second hand vehicles total procurement is estimated at 12,712 vehicles. According to the Ministry of transport annual purchase of new buses stays at a level of 4.9 thousand buses, which is not enough even to replace obsolete vehicles.

Funding and Procurement

As Russia’s economy expands, and income levels continue to rise rapidly, there is a trend towards raising fares, improving fare-collection procedures, and reducing the operational expenses of municipal transport operators. At the same time, many local authorities are encouraging commercial operators to assume a greater role in providing mass transit services. The market for vehicles remains a direct function of the purchasing power of regional and city governments. However, these entities are not able to renew the fleet without federal support. Government subsidies still remain the primary source of vehicle fleet replacement in the municipal enterprises. In 2002, 6 billion rubles were spent on bus purchases and 2.2 billion rubles on trams and trolley buses. All purchases of electric transport and most bus purchases were made from government budgets. Operators’ own funds accounted for only 1.2 billion rubles spent on bus purchases.

Outright purchase is the usual method for procurement of vehicles by public and private sector operators. Municipal entities typically purchase by open public tender, while the private operators use many procurement schemes to pay for vehicles in cash and register them as private vehicles. The leasing sector is relatively undeveloped in Russia, and small bank loans are difficult, if not impossible to arrange. In addition, there are tax privileges granted when a vehicle is registered as individually owned. Both small and large operators use similar procurement and registration methods. Most of them operate vehicles rented from individuals. The practice is not without risk, as most contracts concluded in these cases lack legal basis and usually are not accepted by court.

The financial services sector is developing quite rapidly in Russia, and in the medium to long term a range of financing options should become available to fleet operators to make capital equipment acquisitions more efficient. Currently private operators have begun to utilize leasing schemes for fleet renewal. However, standard conditions of leasing in Russia usually require a down payment of 30% with the contract period no more than 3 years.

Since 2002, the Russian federal government’s program ”Modernization of Russia’s Transport System” has been under implementation. The program supports transport fleet renewals by partially subsidizing the interest rates of commercial loans provided to municipalities for such purchases. However, in 2003, only 7 million rubles were provided from the federal budget, which helped to attract credits worth 320 million rubles. This program is partially modeled after the World Bank’s "City Transport" project (1995-2001). Under the project, 14 cities were selected to participate in an open competition: Velikie Luki, Vologda, Ekaterinburg, Kostroma, Nizhni Novgorod, Novgorod, Omsk, Pskov, Rostov, Samara, Saransk, Smolensk, Tver, and Cherepovets. During the course of that program, some 1,392 new city buses and 40 trolley buses were purchased, and more than 1,000 trams and buses were overhauled. Diagnostic and garage equipment, communication facilities and office equipment were also purchased and more than 5,000 Russian experts were trained in mass transit management. The most significant result of the project implementation was that revenues from travel fares payment increased by over 50% in the participating cities, which helped these cities to reduce budget subsidies. Moreover, the quality of mass transit services increased and waiting time and vehicle occupancy was reduced.

Local Production

While the production capacity of local industry for mass transit purposes is able to satisfy demand, the quality of equipment remains rather low. Vehicles’ reliability and comfort is essentially lower and the level of operational costs higher than that of foreign competition. Although prices for domestic manufactured buses, trolley buses and trams are generally half that of similar foreign-made equipment, many mass transit operators still prefer secondhand imported vehicles, largely because of reliability.

Trolley bus manufacturing in Russia is concentrated in 3 firms: Trolza JSC (Saratov region), Trans-Alpha JSC (Vologda), and Bashkirski Trolley Bus Plant JSC. Around 500 trolley buses were manufactured in 2002. The state-owned Ust-Katava Plant (Chelyabinsk region), Uraltransmach (Ekaterinburg) and OAO Saint-Petersburg Tram-Mechanical Plant produce the trams in Russia. Finally, ZAO Metrovagonmash (Moscow region) and ZAO Vagonmash (Saint-Petersburg) produce essentially all Metro rail cars in Russia. Current production is around one quarter of the rate of 5 years ago, and currently output is fewer than 50 cars per year. While manufacturing capacity of these plants can satisfy demand for cars, including comfortable modern energy efficient cars, the depressed purchasing power of local authorities and a reduction of available federal financial support has kept sales on a low level.

Most Russian manufacturing facilities are privatized and are under control of large Russian financial and industrial groups. One example is "Russkiye Avtobusy", which includes largest Russian bus factories (LIAZ, PAZ, Golaz, KAVZ). The large financial and industrial group “Basic Element,” which is, in turn, controlled by well-known Russian businessman Oleg Deripaska. In addition, international investment in bus manufacturing is also furthering demand for western components. In order to improve quality of vehicles and produce fuel-efficient equipment, local bus manufacturers are incorporating foreign components like engines, transmissions, and axels.

Local production of rolling stock in 2001-2004

	2001	2002	2003	2004
BUSES
Russian Federation	56,976	67,239	76,578	76,209
ZIL	222	109	69	50
GAZ	21,597	32,229	36,299	31,522
UralAZ	462	475	520	527
UAZ	18,524	18,898	21,553	17,037
LiAZ	1,540	1,561	1,674	1,844
PAZ	10,267	10,358	11,323	12,114
GolAZ	106	61	129	104
"ОZTP-SARMATIAN" Open Society, Orsk	18	10	1	-
"Volzhanin" Volga	250	300	158	179
NefAZ	321	481	726	968
KAVZ	1,817	1,239	1,607	2,073
Tushino-Аvto joint-stock company	594	619	544	664
Michurinsk ARF	379	362	248	194
Siberian-Scandinavian Company	9	3	5	12
Pskov - Auto	225	152	42	-
Semar Open Company,	512	247	196	395
"Schania-Peter" Open Company, St.-Petersburg	-	26	94	147
JSC " RUP", Ivanovo region.	38	21	18	19
Ukraine	514	273	394	400
Lvov Bus factory	514	273	393	400
Byelorussia	429	446	480	577
MAZ, Minsk	429	446	480	577
TROLLEYBUSES
TOTAL	656	522	379	404
The Russian Federation	649	504	376	370
PLC "TrollZa", Engels	468	300	139	124
Other enterprises	181	204	237	246

Source: joint-stock company " Autoselkhozmash-holding ", including statistics for 2003 and 2004 published in ”Trucks & Buses” #2, 2005

Imports

At present the development of Russia’ mass transit vehicle imports depends to a great extend on the customs policy pursued by the Government of the Russian Federation. Russia imports mainly second-hand buses. However, in 2003 the market for imported second-hand buses collapsed when the Russian Government introduced new increased import duties for buses over 7 years old. Import tariff for these buses increased to 3 Euro per one cubic cm of engine displacement. As a result customs clearance for a bus with engine displacement of 12 liters will cost around 39,600 Euro. For the first ten months of 2003 Russian buyers imported little more than thousand buses over 8 tons compared to 6,300 in 2002.

Currently the demand for used buses of large and extra large capacity is increasing once again. In 2004, the market began to rebound with a total 2,823 imported vehicles brought into Russia. Regions, which purchase more than 100 imported vehicles include Kaliningrad oblast (443), Moscow (247), St. Petersburg (187), Khabarovsk krai (179), Irkutsk oblast (152) and Buryatia (115). The majority of these vehicles were manufactured between 1995-1999. Lastly, Russian operators have repeatedly mentioned the aggressive marketing strategies of Chinese bus manufacturers. While these efforts have yet to result in significant imports, it is an area that we will continue to monitor.

Best prospects

Despite low prices and trade barriers for imports, local industry still is unable to satisfy market demand for reliable, well-made vehicles. Domestic production does not answer modern requirements, and developing new models will likely take too long to meet the growing needs of the market. Solving the problems facing obsolete manufacturers will undoubtedly require strategic investments and access to new technologies to allow these companies to improve production and access international markets for their vehicles.

There are some important positive indications for the transit vehicle manufacturing sector in Russia. The Russian vehicle and component manufacturing industry is now in an active integration process. Integrated businesses – groups or holdings absorbed by successful and cash-rich Russian financial and industrial groups are investing in the manufacturing sectors with good growth prospects, such as the automotive sector. The Russian government is also supporting innovation in the domestic manufacturing industry. Under its “Concept for Automotive Industry Development till 2010,” the government aims: “to integrate Russian industry into the global market and increase its efficiency with up-to-date competitive products. The state will encourage direct and portfolio investments into this sector, as well as joint ventures creation and other co-operation projects.” Barriers for complete imported vehicles are already being implemented and these barriers will probably continue for several years.

Russia’s mass transit rolling stock market is one of the world's largest and it will keep developing in the long run. Best prospects for international cooperation include, engines, transmissions, and braking systems, electronic systems like ESP and ABS, interior design and materials are among the technologies that Russian manufacturers have identified. Navigational systems, electronic passenger information systems and fare collection systems are also important identified innovations for the medium term. In addition, fleet management and monitoring systems will need to be improved and expanded.

Trade shows and Promotional Events

Several upcoming events will provide opportunities for U.S. companies. The Commercial Service is working with the Federal Transit Administration (FTA), U.S. Department of Transportation to highlight opportunities for U.S. Component manufacturers and services providers in the Russian mass transit sector. As follow-on to a successful 2003 Urban Mass Transit Trade Mission that visited Moscow and St. Petersburg, FTA and CS Russia is organizing a technical exchange workshop to be held in Moscow on developing effective mass transit systems. This workshop, part of the International Mass Transportation Program (IMTP), will provide a forum through which relevant Russian Government officials and local mass transit agencies will be joined by senior government officials and private sector companies from the United States to discuss advancements in the mass transit industry. Gold Key Services and other value-added services will be provided to the U.S. firms participating in this event. For more information on the workshop, please contact Mr. Edwin Rodriguez at E-mail: edwin.rodriguez@fta.dot.gov.

Moscow Auto Salon and Moscow International Motor Show are alternating annual events and are the leading automotive industry trade events in Russia. With exhibitors from more than 30 countries and over 300,000 visitors, this show is the ideal venue to connect with potential customers or partners in this important and rapidly growing automotive market. CS Russia is offering several value added services for potential U.S. exhibitors at the August 2005 Motor Show. Please contact Mr. Alexander Kansky at E-mail: alexander.kansky@mail.doc.gov.

CS Russia is organizing a delegation of Russian Officials and industry representatives to attend the International Public Transportation Expo occurring September 22-26, 2005 in Dallas, Texas. This triennial event will showcase transit-related products and services to industry professionals from around the world and is the largest event of its kind. For more information on the Russian delegation to APTA, please contact Marina Vigdorchik at E-mail: Marina.Vigdorchik@mail.doc.gov.

One final Moscow event of interest to U.S. component manufacturers is “Commercial Transport (COMTRANS) happening April, 2006. This is another large annual exhibition featuring all types of commercial vehicles, including buses, trucks, trailers, components and services. COMTRANS main distinguishing feature is the real-life demonstrations of equipment and machinery.

Further assistance for U.S. companies

The U.S. Commercial Service (CS) in Moscow offers a wide array of services for U.S. companies interested in expanding their sales to the Russian market including developing contacts, identifying distributors and arranging meetings with prospective buyers during business visits to Russia. For more information on CS Russia services and the Russian transport industry, please visit our website at: www.buyusa.gov or contact:

Marina Vigdorchik, Commercial Specialist

CS Moscow

Phone: 7-095-737-5023; Fax: 7-095-737-5033

E-mail: Marina.Vigdorchik@mail.doc.gov